Daily Market Report | 07/25/2023
US FINANCIAL MARKET
US Stocks Muted, Bonds Under Pressure After Data: Markets Wrap – Bloomberg, 7/25/2023
- US stock trading was muted as traders awaited earnings from technology megacaps and Wednesday’s Federal Reserve decision.
- The S&P 500 fluctuated, while the tech-heavy Nasdaq 100 outperformed as Microsoft and Alphabet were due to report their results.
- Shares in both companies rose as investors waited to see if the results justify the companies’ hefty year-to-date share gains.
- The S&P 500 rose 0.1%. The Nasdaq 100 rose 0.7%. The Dow Jones Industrial Average was little changed.
- Treasuries came under pressure after a gauge of US consumer confidence advanced in July to a two-year high.
- The yield on 10-year Treasuries advanced three basis points to 3.90%.
- Overall, S&P 500 companies with a market value of $16.3 trillion are publishing earnings this week.
- European shares also edged higher, lifted by resources firms such as Anglo American and Rio Tinto that benefited from Chinese authorities’ latest stimulus pledge.
- The Stoxx Europe 600 rose 0.4%.
- Among individual movers, consumer-goods giant Unilever stood out, gaining as much as 5.6% after beating sales estimates, while spirits group Remy Cointreau surged after Chinese sales helped it surpass forecasts.
- Investors appear wary of placing big bets, given uncertainty over what signals Fed and European Central Bank policymakers might send, with the Fed’s potential policy path, especially, crucial for global markets.
- Chinese leaders used this week’s Politburo meeting to flag more aid to the economy.
- Oil prices held near three-month highs, while copper and iron ore rose, given their importance for China’s construction sector.
- US-listed Chinese stocks also extended their rally.
- The Bloomberg Dollar Spot Index was little changed.
- West Texas Intermediate crude was little changed.
- Gold futures fell 0.2% to $1,997.20 an ounce.
Verizon Promises Turnaround Amid Lull in Smartphone Upgrades – Wall Street Journal, 7/25/2023
- Verizon added more prime wireless customers in the latest quarter but reported a decline in profit and revenue, a symptom of people taking longer to upgrade their older smartphones.
- Total revenue fell 3.5% to $32.6 billion.
- The cellphone carrier, America’s largest by subscribers, ended the June quarter with 8,000 more postpaid phone connections as its growing business unit continued to offset a shrinking consumer division.
- Verizon’s overall profit fell to $4.65 billion from $5.2 billion a year earlier. On a per-share basis, the profit fell to $1.10 from $1.24, a figure that included severance costs tied to job cuts, among other expenses.
- Excluding one-time items, profit came in stronger than analysts had forecast.
GM’s Fat Profits Are Getting Awkward – Wall Street Journal, 7/25/2023
- Strong financial results are great for companies—except when they are negotiating with unions.
- Revenue came in at $44.7 billion, 25% more than in the same quarter last year and a post-bankruptcy record, as the bestselling U.S. automaker increased output while a long-expected normalization of prices following pandemic-era vehicle shortages failed to materialize.
- The average GM vehicle cost $52,248 in the quarter, almost $2,000 more than a year ago.
- Although GM beat analyst expectations handily at the top line, operating profit of $3.2 billion was merely in line with estimates.
- A big reason was a $792 million charge relating to a settlement with the company’s Korean battery suppliers LG Electronics and LG Energy Solution following the mass recall of Chevrolet Bolt EVs.
- Despite that additional cost, the company raised its guidance for full-year operating profit to $13 billion at the midpoint, from $12 billion.
3M Earnings Weighed Down by ‘Forever Chemicals’ Settlement – Wall Street Journal, 7/25/2023
- 3M raised its earnings expectations for the year despite swinging to a quarterly loss because of a large litigation settlement.
- 3M, which makes industrial and consumer goods, saw total sales fall 4.3% to $8.33 billion, surpassing the $7.88 billion forecast by analysts polled by FactSet.
- Adjusting for one-time expenses, such as the settlement charge, the company reported per-share earnings of $2.17, down from $2.45 a year earlier but surpassing analysts’ expectations, according to FactSet.
- Despite the charge, 3M said it expected adjusted per-share earnings of $8.60 to $9.10, higher than prior guidance of $8.50 to $9.
- The company attributed its raised expectations to “strong operational execution and cost discipline.”
- In the second quarter, 3M brought in more income from its business operations, with operating cash flow rising 34% compared with a year earlier.
- Altogether, the company expects the layoffs of around 10% of its workforce to save $700 million to $900 million pretax.
GE Lifts Guidance as Sales and Earnings Rise – Wall Street Journal, 7/25/2023
- General Electric raised its cash flow and sales targets for the year after reporting strong orders and improved results across most of its operations in the second quarter.
- Sales rose to $16.7 billion from $14.1 billion.
- Analysts expected $14.8 billion in sales.
- Per-share earnings, after adjustments, rose to 68 cents for the second quarter, from 36 cents a year earlier.
- Analysts expected 46 cents a share in adjusted earnings, according to FactSet.
- The company reported free cash flow, a measure watched closely by investors, of $415 million for the quarter, up from $192 million in second-quarter 2022.
- GE said it now expects full-year earnings per share, after adjustments, to land between $2.10 and $2.30, improved from earlier guidance of $1.70 to $2.
- Revenue excluding currency and effects is likely to grow by a low double-digit percentage, improved from high single digits, GE said.
- Free cash flow is likely to range between $4.1 billion and $4.6 billion, up from the company’s previous guidance of $3.6 billion to $4.2 billion.
Dow flags dismal second-half, Q2 profit tumbles – Reuters, 7/25/2023
- Dow on Tuesday posted a 70% drop in second-quarter profit on lower product prices and weak sales volumes, while warning that the macroeconomic environment would remain challenging in the second half of the year after.
- Dow’s net sales during the quarter fell to $11.4 billion from $15.7 billion, hinting at weak demand for its products that are used in everything from plastics and paints to building materials.
- Dow posted operating income of 75 cents per share, beating estimates by 5 cents, according to Refinitiv data, aided by its cost-saving efforts.
- Dow said it was expecting third-quarter net sales in the range of $10.25 billion to $10.75 billion, lower than Wall Street’s expectations of $12.37 billion in net sales.
- Raytheon Technologies’s stock tumbled Tuesday to put it on track for its worst one-day selloff since the terror attack in September of 2001, after the company said it needs to remove certain Pratt & Whitney engines from service for inspection.
- The engine business has determined that a rare condition in powder metal used to make certain engine parts will require accelerated fleet inspection, the company said, an issue that “has recently come to light.”
- While it does not impact engines currently being produced, a “significant” portion of the PW1100G-JM engine fleet, which powers the Airbus A320neo family of narrow-body airliners, will need to be removed and inspected in the next nine to 12 months, including about 200 accelerated removals due by mid-September.
- “The business is working to minimize operational impacts and support its customers,” said the company.
- Sales rose to $18.315 billion from $16.314 billion, also ahead of the $17.683 billion FactSet consensus.
- By segment, sales at Collins Aerospace rose 17% to $5.850 billion, while sales at Pratt & Whitney rose 15% to $5.701 billion.
- Raytheon Intelligence & Space sales rose 2% to $3.655 billion, and Missiles & Defense sales rose 12% to $4.0 billion.
- Adjusted per-share earnings came to $1.29, ahead of the $1.18 FactSet consensus.
- Sales are expected to range from $73.0 billion to $74.0 billion, up from prior guidance of $72.0 billion to $73.0 billion.
- The company said it now expects full-year cash flow of about $4.3 billion, down from about $4.8 billion.
- It expects adjusted EPS of $4.95 to $5.05, compared with prior guidance of $4.90 to $5.05.
NextEra 2Q Earnings Up Sharply as it Adds Solar-Power Capacity – Market Watch, 7/25/2023
- NextEra Energy posted second-quarter earnings more than double the year-earlier level as the electricity generator added solar-power capacity.
- Second-quarter revenue rose 42% to $7.35 billion.
- Excluding items such as nonqualified hedges and changes in value of investments held in a nuclear decommissioning fund, NextEra registered adjusted earnings of $1.78 billion, or 88 cents a share.
- NextEra Energy Resources, NextEra’s renewable-energy arm, posted a more-than tenfold increase in second-quarter net income, which rose to $1.46 billion, or 72 cents a share.
- Florida Power & Light, NextEra’s biggest unit and the largest U.S. electric utility by customers, generated second-quarter earnings of $1.15 billion, or 57 cents a share.
- The unit placed about 225 megawatts of solar power in service during the three-month period.
- NextEra reiterated its 2023 adjusted earnings projection, targeting a range of $2.98 to $3.13 a share.
- Kimberly-Clark stock was up in premarket trading on Tuesday after the household products maker said its second-quarter profit fell by 77%, but its revenue and adjusted profit exceeded analyst estimates.
- Kimberly-Clark’s revenue for the second quarter increased by 1% to $5.134 billion, just ahead of the analyst estimate of $5.126 billion.
- Organic sales were up by 5%, with a boost from a 9% increase in prices and a “favorable product mix” which was offset by a 3% drop in volume.
- Adjusted earnings for the latest quarter totaled $1.65 a share, well ahead of the analyst forecast of $1.48 a share, according to estimates compiled by FactSet.
- Looking ahead, Kimberly-Clark said it now expects 2023 organic sales to increase by 3% to 5%, compared to its earlier expectation for growth of 2% to 4%.
- The company’s 2023 operating margin is expected to increase by up to 1.5%, compared to its previous estimate of 1.3%.
- Shares of Albertsons Companies rose in premarket trading Tuesday, after the grocery-store chain reported fiscal first-quarter earnings that beat expectations, as retail price inflation across most categories and growth in pharmacy and digital sales helped boost same-store sales.
- Sales grew 3.2% to $24.05 billion, above the FactSet consensus of $23.95 billion, as same-store sales increased 4.9% and digital sales jumped 22%.
- Excluding nonrecurring items, adjusted earnings per share of 93 cents topped the FactSet consensus of 85 cents.
Biogen to Cut Roughly 11% of Workforce to Focus on Big-Return Drugs – Wall Street Journal, 7/25/2023
- Biogen said it is eliminating about 1,000 jobs, or about 11% of its workforce, after the drugmaker’s new chief executive concluded it had too many costly drug-research projects that weren’t likely to generate big returns.
- The Cambridge, Mass.-based company said the cuts would help the company reduce its annual operating expenses by about $1 billion by 2025.
- Of those savings, Biogen plans to invest about $300 million into new product launches and remaining research and development programs.
US ECONOMY & POLITICS
Home Prices in US Rise for Fourth Month With Inventory Tight – Bloomberg, 7/25/2023
- Home prices in the US climbed for a fourth month as demand coupled with tight inventory to push values higher.
- A national gauge of prices rose 0.7% in May from April, according to seasonally adjusted data from S&P CoreLogic Case-Shiller.
- In the four weeks through July 16, the total number of homes listed for sale was down 16% from a year earlier, according to data from Redfin Corp.
- On a year-over-year basis, prices nationally were down 0.5%, compared with a 0.1% drop in April.
- Chicago, Cleveland and New York posted some of the biggest price increases in a measure of 20 cities, the first time in five years that a cold-weather city held the top spot.
US Consumer Confidence Rises to a Two-Year High on Job Market – Bloomberg, 7/25/2023
- US consumer confidence advanced in July to a two-year high, bolstered by a strong job market and easing inflation.
- The Conference Board’s index rose to 117 this month from 110.1 in June, data out Tuesday showed.
- That exceeded the median estimate of 112 in a Bloomberg survey of economists.
- A measure of expectations — which reflects consumers’ six-month outlook — advanced to the highest since the start of last year.
- A gauge of expected inflation ticked down.
- “Greater confidence was evident across all age groups, and among both consumers earning incomes less than $50,000 and those making more than $100,000,” Dana Peterson, chief economist at the Conference Board, said in a statement.
- The share of consumers saying recession is “somewhat” or “very likely” to occur did tick up.
- “Still, recession expectations remained below their recent peak, suggesting fears of a recession have eased relative to earlier this year,” Peterson said.
- More consumers said jobs were “plentiful” in July.
EUROPE & WORLD
At Spotify, Podcast Cuts and Higher Music Royalties Deepen Losses – Wall Street Journal, 7/25/2023
- Generation Z and overseas listeners helped Spotify notch its strongest ever quarter for new users, while the streaming giant reported steeper losses from podcasting cuts and higher music royalty costs.
- Overall revenue for the second quarter was up 11% to €3.18 billion, shy of the company’s forecast.
- Spotify’s base of paying subscribers—its most lucrative type of customer—rose 17% to 220 million, topping the company’s expectations by three million.
- Revenue from advertising rose 12% to €404 million.
- Average revenue per user for the subscription business in the quarter slipped 6% to €4.27.
- Overall, the streamer reported 551 million monthly active users, a 27% jump from a year earlier, 21 million ahead of guidance and a record high for the company.
- User growth was stronger than expected in all regions, with particular strength in Latin America, the company said.
- The company also added more younger listeners.
- Its gross margin fell to 24.1% as a result of €44 million in charges related to canceling podcast shows, staff layoffs and the impairment of excess real estate.
- The company posted a wider loss of €302 million, equivalent to about $335 million, or €1.55 a share, for the quarter ended in June, compared with €125 million, or 85 European cents, in the year-earlier period
- Free cash flow, a measure of the cash a company generates from operations that is viewed by many investors as a proxy for performance, was €9 million, compared with €37 million a year earlier and €57 million in the prior quarter.
Unilever Says Inflation Has Peaked as Sales Growth Rises – Wall Street Journal, 7/25/2023
- Hellmann’s mayonnaise and Dove soap maker Unilever benefited from sharply higher prices again in the second quarter, but the consumer-goods giant’s finance chief said the company is past peak inflation.
- Overall, sales for the second quarter were 15.74 billion euros, equivalent to $17.42 billion, down 0.45% from a year earlier.
- Ice-cream prices rose 12.1% in the quarter, while prices at Unilever’s nutrition business rose 11.8%.
- Ice-cream volumes dropped 5.8% and nutrition 2.6%.
- By contrast, volumes in home care fell 2.1%.
- Unilever said it raised prices 8.2% in the second quarter from the same period a year earlier, while volumes were roughly flat.
- That price increase boosted underlying sales 7.9%.
- On Tuesday Chief Financial Officer Graeme Pitkethly said that consumers in North America are “starting to show signs of caution,” even as inflation eases and that Unilever is fighting stronger competition from store brands in ice cream and salad dressings.
- “We still think there’s a possibility of a mild recession,” he said.
IMF Lifts World Growth Outlook on US Stability, But Risks Linger – Bloomberg, 7/25/2023
- The International Monetary Fund raised its outlook for the world economy this year, estimating that risks have eased in recent months after the US averted a default and authorities staved off a banking crisis on both sides of the Atlantic.
- Global gross domestic product will expand 3% in 2023, the IMF said in an update to its World Economic Outlook released Tuesday.
- While that’s still a slowdown from 3.5% growth last year, it’s faster than its 2.8% projection in April.
- The Washington-based fund left its global growth expectation for next year unchanged at 3%.
- Despite the slightly more optimistic global view, the IMF warned that prospects for growth look weak compared with the 3.8% average during the two decades prior to the Covid-19 pandemic and that “the balance of risks to global growth remains tilted to the downside.”
- The IMF sees inflation slowing to 6.8% this year — compared with a 7% forecast in April — from 8.7% in 2022.
- But the fund also raised its projection for cost-of-living increases in 2024 by 0.3 percentage point to 5.2%, saying that it expects core prices, which exclude food and energy, to cool more gradually than before.
- Among the world’s largest economies, the IMF expects the US to grow 1.8% this year, a 0.2 percentage-point increase from April, before slowing to 1% in 2024.
Top Battery-Maker CATL’s Profit Soars 63% Amid EV Sales Boom – Bloomberg, 7/25/2023
- Chinese battery maker Contemporary Amperex Technology’s quarterly profit soared, powered by rising electric-vehicle sales globally and stabilizing prices of key materials like lithium.
- Revenue increased 56% to 100 billion yuan.
- Net income rose 63% to 10.9 billion yuan ($1.5 billion) in the three months through June, based on a Bloomberg calculation of the company’s first-half financial statement released Tuesday.
- Both figures beat analyst estimates.
- Record quarterly sales for top customer Tesla, which accounts for 12% of CATL’s revenue, according to supply-chain data compiled by Bloomberg, helped propel the Fujian-based company’s profit growth.
- Gross margins also continued to grow, reaching 21.6% for the period, up almost three percentage points from the same period a year earlier.
- The company also has a fast-growing energy storage business which contributed 28 billion yuan to the top line.
TikTok’s Next Plan for U.S. Dominance: Selling Made-in-China Goods – Wall Street Journal, 7/25/2023
- TikTok is launching an e-commerce business in the U.S. to sell made-in-China goods to consumers, stepping up its rivalry with popular shopping platforms Shein and Temu.
- The video-sharing platform will make the program available in its biggest market in early August, people familiar with the plan said, as it seeks to replicate the American success of the two China-founded rivals.
- Similar to Amazon.com’s “Sold by Amazon” program, TikTok will store and ship items—including clothes, electronics and kitchen gadgets—on behalf of manufacturers and merchants in China.
- It will also handle marketing, transactions, logistics and after-sale services.
Driven by AI boom, TSMC to invest $2.9 billion in advanced chip plant in Taiwan – Reuters, 7/25/2023
- Driven by a surge in demand for artificial intelligence, Taiwanese chip maker TSMC plans to invest nearly T$90 billion ($2.87 billion) in an advanced packaging facility in northern Taiwan, the company said on Tuesday.
- “To meet market needs, TSMC is planning to establish an advanced packaging fab in the Tongluo Science Park,” the company said in a statement.
- The Tongluo Science Park administration has officially approved TSMC’s application to lease land, the company said, adding the new plant in the northern county of Miaoli would create about 1500 jobs.
Russian Jet Fighter Damages U.S. Drone Over Syria – Wall Street Journal, 7/25/2023
- A Russian jet fighter damaged a U.S. MQ-9 Reaper drone over Syria by releasing flares close to the American aircraft, the U.S. military said Tuesday.
- The confrontation took place Sunday morning local time and follows similar episodes that U.S. officials say are part of a Russian campaign to pressure American forces to cut back on their military operations in the region.
- The U.S. drone managed to limp back to its base in the region but its propeller was damaged, according to U.S. officials who issued photos and video of the encounter.
- According to a statement issued Tuesday by Lt. Gen. Alexus Grynkewich, the top U.S. Air Force commander in the region, the episode occurred when the Russian plane flew within a few meters of the drone, which was on a mission against Islamic State, and released flares from a position directly overhead.
- “One of the Russian flares struck the U.S. MQ-9, severely damaging its propeller,” he said. “Fortunately, the MQ-9 crew was able to maintain flight and safely recover the aircraft to its home base.”
- Brazilian miner Vale is close to completing a deal to sell a roughly 10% stake in its $25 billion base metals unit to a joint venture between Saudi Arabia’s sovereign-wealth fund and a Saudi mining company, according to people familiar with the matter.
- Saudi Arabia’s sovereign-wealth vehicle, the Public Investment Fund, and state-owned mining company Ma’aden, are nearing an agreement to pay $2.5 billion for the stake, the people said.
China’s Foreign Minister Replaced After Unexplained Absence – Wall Street Journal, 7/25/2023
- Chinese leader Xi Jinping removed his handpicked foreign minister, Qin Gang, after less than seven months on the job, a surprise move that leaves more questions than answers around China’s black-box political system.
- Qin’s removal comes after his mysterious absence from the public stage over the past month, a disappearance that has sparked speculation about his fate and cast a global spotlight on the Communist Party’s opaque governance of the world’s second-largest economy.
- At a hastily convened session Tuesday, the Chinese legislature’s standing committee decided that Wang Yi, the former foreign minister and currently China’s top diplomat, would retake his old post, which he had relinquished late last year.
Factmonster – TODAY in HISTORY
- The United States tested the first underwater atomic bomb at Bikini Atoll. – 1946
- Puerto Rico became a commonwealth of the United States. – 1952
- The Italian liner Andrea Doria sank after colliding with the Swedish ship Stockholm off the New England coast, killing 51 people. – 1956
- The world’s first test-tube baby, Louise Joy Brown, was born in Lancashire, England. – 1978
- Soviet cosmonaut Svetlana Savitskaya became the first woman to walk in space. – 1984
- The supersonic airliner Concorde crashed after takeoff outside Paris. – 2000
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Historical performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. Any economic forecasts set forth may not develop as predicted. All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. Material presented is excerpts derived from third party content and you may need a subscription to access the full the content. The views and opinions expressed are those of the authors and do not necessarily reflect the views of Pence Wealth Management or LPL Financial. Prior to making any investment decision please consult your financial advisor regarding your specific situation.
